CNH Industrial

Phase A — Understand the business

Lens 1 · Company Overview

CNH Industrial N.V. is a Netherlands-incorporated, UK-headquartered (Basildon, Essex), NYSE-listed (ticker CNH, formerly CNHI until May 2024) global maker of agricultural and construction equipment, formed in 2013 from the Fiat Industrial / CNH Global combination. It runs three reportable segments: Agriculture, Construction, and Financial Services — Ag + Construction together are "Industrial Activities". Commercial presence in ~166 countries; industrial/commercial/financial subsidiaries in 32 countries.

How it makes money: it designs, manufactures and sells tractors, combines, harvesters, crop-protection and production equipment (Agriculture — the profit engine) and heavy/light construction equipment (Construction), and runs a captive finance arm (Financial Services) that provides retail financing to end-buyers and wholesale floorplan financing to dealers. The captive is structurally important: it lubricates equipment sales (subsidised/waived finance charges are recognised as a reduction in Industrial net sales, with the segment compensating FS at a targeted ROE), and it carries a $28.6B managed portfolio (70% retail / 30% wholesale) as of Dec 31 2025. Core brands: Case IH, New Holland (ag), Case and New Holland Construction, STEYR, and the Raven precision-ag platform.

Strategy — "Iron + Tech": management's stated spine is integrating core hardware with precision agriculture, automation, connectivity and autonomy — internalising foundational tech, a full tractor-line refresh, new combines, and factory-fit Precision Technology across large product lines. Customers are farmers and contractors, reached almost entirely through an independent dealer network; suppliers are global steel, powertrain, electronics and component vendors. CEO is Gerrit Marx (since 2024); the FY2025 10-K is signed by Marx and CFO James Nickolas, dated Feb 26 2026. Auditor: Deloitte & Touche LLP. Investment-grade credit rating.

Lens 2 · Supply Chain

Upstream → CNH → end customer, with named stakeholders:

• Upstream inputs: steel and castings; engines/powertrain (CNH internalises some engine capability, a legacy of the FPT/Iveco lineage, but still sources transmissions, hydraulics, electronics and chips from third parties); precision-ag electronics and software (the Raven acquisition internalised guidance/spray-control tech; Bennamann added biomethane; Monarch Tractor was a minority autonomy/electrification stake — all three were written down in FY2025, see Lens 5/10). Component and chip availability remain the historical chokepoints for an equipment OEM.
• CNH (manufacturing): plants across North America, EMEA, South America and APAC; the segment economics are volume-leveraged — when shipments fall, fixed-cost absorption collapses (FY25 COGS rose to 80.7% of net sales vs 78.3% on lower volumes plus tariffs).
• Distribution: independent dealers are the single most important midstream stakeholder. Dealers carry inventory financed by CNH's own Financial Services wholesale book — so dealer destocking directly drains CNH's revenue (production is deliberately run below retail demand to right-size dealer stock) while wholesale receivables sit on CNH's balance sheet.
• End customers: row-crop and livestock farmers (ag) and construction contractors. Demand is driven by farm cash receipts / crop prices (corn, soy) and the equipment replacement cycle — exogenous, commodity-priced, and currently in a deep trough.

Chokepoints / single-source dependencies: (1) the dealer channel is both distribution and a captive-credit counterparty — a dual concentration; (2) South America (Brazil) is a concentrated credit-risk node — the FY25 10-K explicitly flags credit concentration in dealer financing in the EU and North America and in South America; (3) tariffs are a new, externally-imposed cost chokepoint hitting imported components and cross-border production (management quantifies the drag — see Lens 5).

Lens 3 · Competitive Advantages (moats)

CNH is the #2 global ag-equipment maker behind John Deere, ahead of Kubota and AGCO depending on the metric; Zacks frames the top-three global ag makers as Deere, Kubota and CNH Industrial, in that order. The moats are real but second-tier:

• Brand + installed base + dealer network (durable): Case IH and New Holland are century-old brands with deep farmer loyalty and a dense dealer/parts/service network. Switching costs are high — a farmer's existing fleet, dealer relationship and parts familiarity create stickiness. High-margin parts & service smooth the cycle.
• Scale (moderate): ~$15.3B FY25 industrial net sales gives real purchasing and R&D scale, but Deere is roughly 2–3x larger and out-earns CNH on margin — Deere is the scale leader, CNH the challenger.
• The moat gap — precision ag / autonomy: this is the structural weakness. Deere is the clear technology leader (See & Spray, the FieldOps data platform, and a publicly-demoed driverless tractor with 12 stereo cameras and an Nvidia GPU). CNH's "Iron + Tech" is a fast-follower built partly on acquisitions — and FY2025 booked a $172M non-cash IPR&D impairment on the Raven and Bennamann deals plus a Monarch Tractor impairment. That is the income statement telling you the precision-tech M&A has not yet earned its cost of capital. The autonomy/precision layer is where the next decade's pricing power and recurring (data/software) revenue will accrue, and CNH is behind on the exact axis that matters most.
• Bargaining power: strong over individual dealers and customers (brand pull); weaker over the cycle and over commodity-input/tariff costs, which it cannot dictate.

Net: a genuine but narrower moat than Deere's — brand and distribution protect the base; the tech gap caps the upside.

Lens 4 · Segments

FY2025 vs FY2024, all ``:

Agriculture is the company — ~81% of industrial net sales and the overwhelming majority of profit. Its Adjusted EBIT fell 47% ($1,470M → $772M) and margin compressed 430 bps, the dominant driver of the whole-company earnings collapse.

Ag by geography (FY25): North America $4,296M (−26.4%) — the epicentre of the downturn; EMEA $4,614M (+8.1%, the one bright spot, now CNH's largest ag region); South America $2,016M (−11.6%); APAC $1,464M (−9.7%). Underlying NA industry volume: tractors >140hp −33%, combines −26%. EMEA outperforming NA is the notable mix shift.

Trend into 2026 — decelerating further: Ag Adjusted EBIT fell from $137M (Q3'25) to $27M (Q1'26); Construction went from +$14M (Q1'25) to −$28M (Q1'26) — Construction is now lossmaking. The segment trajectory is still pointing down at the start of 2026.

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Phase B — Measure performance

Lens 5 · Earnings Result

The latest print (Q1 2026, 10-Q):

• Net sales $3,170M (≈flat vs $3,172M); Total Revenues $3,826M (flat vs $3,828M). Volume has stopped falling sequentially but at a deeply depressed level.
• Net income attributable to CNH $7M (vs $131M) — a ~95% collapse; diluted EPS $0.01 (vs $0.10).
• Ag Adjusted EBIT $27M (vs $139M); Construction Adjusted EBIT −$28M (vs +$14M); Industrial adjusted EBIT a ~−$45M loss — Industrial Activities lost money at the EBIT line.
• Effective tax rate 30.8% on a tiny profit base (discrete items dominate).

Beat/miss: Q1'26 EPS of $0.01 beat a near-zero $0.0025 consensus, and the stock rose on the print — a "less-bad-than-feared / trough confirmed" reaction, not a fundamental improvement.

Guidance (reaffirmed at Q1'26): FY2026 industrial net sales flat to −4%, industrial EBIT margin 2.5–3.5%, adjusted EPS $0.35–$0.45. Management quantified the tariff drag at ~210–220 bps on ag margins and ~600 bps on construction — tariffs are the single biggest swing factor in the guide.

Balance-sheet flags: inventories built into the downturn — Total inventories $5,234M (Mar'26) vs $4,651M (Dec'25); Ag inventory $4,057M vs $3,635M. Brazil retail credit reserve +$131M YoY; total retail allowance for credit losses $580M (vs $420M) — South American ag-credit stress (crop prices, flooding, drought) is real and worsening.

FY2025 full year (10-K context): Total Revenues $18,095M (−8.8%); net income attributable $510M (vs $1,246M); EPS trajectory through the year (diluted, attrib): 9M'25 $0.34 vs 9M'24 $0.85. Unusual vs own history: COGS at 80.7% of net sales (worst in years), the IPR&D impairment, and FS >30-day past-due jumping to 3.1% from 1.9%.

Lens 6 · Earnings Calls (sentiment trend)

No transcripts on the research shelf (transcripts=0); sentiment is reconstructed from call coverage ``.

Tone has shifted from defensive-in-2025 to cautiously-bottoming-in-2026:

• Q4 2024 / early 2025: management framed 2025 as a "tough financial year" for Case IH and New Holland — braced for the worst.
• Q4 2025 call: "beat EPS forecast despite revenue slip" — the narrative pivoted to cost discipline and dealer-inventory normalisation.
• Q1 2026 call: CEO Marx said CNH is "passing through the lowest period of the current ag cycle" and expected Q1 2026 to be the lowest quarter of the year. The recurring 2026 phrases: "dealer destocking largely complete," "production below retail," "tariff mitigation," "cost actions," "lowest point." What they stopped saying: the confident precision-ag-leadership rhetoric of prior years is muted — the story is now cost-out and survival-through-the-trough, with tech framed as a longer-dated bet.

Sentiment read: management is calling a bottom but explicitly not a sharp recovery — "fine-tuning," not "inflection."

Lens 7 · Comps

Peer set: the global ag/construction-equipment majors. The research _index.json had no agtech peers registered, so peers are pulled from sector knowledge.

Sector context: the farm-equipment industry's forward EV/EBITDA was cited ~53.6x (cyclically-depressed EBITDA inflates the denominator-adjusted multiple), vs a 5-yr median ~27.6x — i.e. the whole group screens "expensive" on trough earnings, which is normal at a cycle bottom. Read across: CNH trades at the low end of the peer group on every comparable metric — Deere commands a structural premium for scale, margins and precision-ag leadership; CNH's ~0.84x EV/Sales and high-teens forward P/E reflect (a) trough earnings and (b) a persistent quality/tech discount. The trailing P/E of 32.7x is meaningless — it is depressed-E, not rich price.

Lens 8 · Stock-Price Catalysts

The 10-K's own 5-year total-shareholder-return table is damning. $100 invested in CNH on 31-Dec-2020: 2021 $153 → 2022 $148 → 2023 $115 → 2024 $112 → 2025 $93. A −7% absolute over five years, while the S&P Midcap 400 went to $155 and Midcap Industrials to $191 — roughly 90–100 points of relative underperformance. CNH has been a serial laggard.

What moves the stock (>5% events, last ~5 years):

• The ag cycle / commodity prices — the dominant driver. The 2023→2025 derate tracked falling crop prices and the equipment-demand rollover.
• Quarterly EPS vs (lowered) expectations — the Q1'26 rise on a $0.01 print shows the market now trades CNH on "beat the depressed bar / is this the bottom," not on absolute earnings.
• Guidance changes and tariff news — 2026 guidance, the tariff-cost quantification, and the PSU-metric change (Feb 2026) are all share-relevant.
• Capital-allocation signals — the $500M buyback and CNH repurchasing stock below $10 in Q4'25 (4.49M shares at $9.42–$10.54).
• South America / Brazil credit headlines — reserve builds and delinquency are a recurring negative catalyst.

Pattern: CNH is a cyclical, expectations-driven, macro-sensitive name — it reacts to the ag cycle and to "less bad than feared," far more than to company-specific innovation. The market does not yet pay it for tech.

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Phase C — Judge people & books

Lens 9 · Management

A new-broom team installed into the downturn:

• CEO Gerrit Marx (50) — appointed 2024; previously CEO of Iveco Group (2022–2024) (the truck business CNH spun off) and President of Commercial & Specialty Vehicles at CNH (2019–2021). An insider-adjacent operator, architect of the "Iron + Tech" cost-out and dealer-destocking push. Track record: ran Iveco through its separation; at CNH he is so far a cost-and-cycle manager — the test (revenue/margin recovery, tech payoff) is ahead of him.
• CFO James Nickolas (55) — appointed 2025; ex-CFO of Martin Marietta Materials (2017–2025), a buildings-materials company. Cyclical-industrials finance pedigree.
• Chief Legal & Compliance Officer Britton Worthen (52) — appointed 2025; was Chief Legal Officer at Nikola Corporation (2015–2025). Flag: Nikola was a fraud-implicated EV startup that went bankrupt — an optics/governance datapoint worth noting, even if Worthen's own conduct is not implicated.
• Heavy churn: CFO, CLO, CHRO, CTO and two segment presidents all turned over in 2024–2025. A wholesale leadership reset.

Skin in the game: insider-transactions.csv is absent — insider ownership not independently quantified [n/a]. Only 392 registered holders (143 with special voting shares) — the share register reflects the Exor/Agnelli-family heritage and special-voting structure (a control overhang).

Capital allocation: dividend policy 25–35% of net income; $500M buyback (announced Feb 2024), ~$249.6M remaining at Dec'25, repurchasing below $10 in Q4'25 — disciplined, value-accretive timing. But the precision-ag M&A (Raven, Bennamann, Monarch) produced impairments, not returns, in FY25 — the most important recent capital-allocation decisions destroyed value so far.

Red flag — incentive design: in Feb 2026 the Human Capital & Compensation Committee removed the dual-threshold requirement from the 2025–2027 PSU grants "in light of the unprecedented impact of tariffs". Loosening performance hurdles during a downturn so management still gets paid is a classic governance yellow flag — defensible on tariffs, but it shifts pay-for-performance risk onto shareholders. Archetype: professional managers (not founders), which fits a turnaround/cost phase.

Lens 10 · Forensic Red Flags

Acting as a forensic analyst, against `` filings:

1. Material weakness — inventory (now remediated). The FY2024 10-K disclosed a material weakness in internal control over financial reporting re: existence/completeness of raw-material and WIP inventory. CNH states it was remediated as of Dec 31 2025 (cycle-count program, full physical counts at certain sites, new SOPs), and Deloitte issued an unqualified attestation. This is the single most important forensic item — a recently-remediated inventory-control weakness sits exactly where this cyclical business is most exposed, and it coincides with inventory building into a downturn (Total inventory +$583M Q/Q to $5,234M in Q1'26). Watch for write-downs if the destock overshoots.
2. Earnings vs cash quality. FY25 free cash flow generation ~$513M against net income attributable of $510M — cash roughly tracked earnings at the consolidated level, which is reassuring. But the captive-finance structure means consolidated cash flow blends industrial and financial-services dynamics; the cleaner read is industrial FCF, not separately isolated here.
3. Receivables / credit. FS >30-day past due rose to 3.1% from 1.9%; retail allowance for credit losses jumped to $580M from $420M, with a +$131M Brazil reserve. Receivables stress is outrunning revenue — a genuine forensic amber, concentrated in South America.
4. Impairments / intangibles. $172M IPR&D impairment (Raven + Bennamann), Monarch Tractor impairment, $62M impairment of unconsolidated affiliates, plus a Bennamann deferred-tax valuation allowance. Goodwill/intangibles from the precision-ag deals warrant ongoing scrutiny.
5. Non-GAAP framing. CNH leads with "Adjusted EBIT" (excludes restructuring, FX, pension non-service, discrete items). The adjustments are modest and disclosed-reconciled, but the headline metric flatters the GAAP picture — in Q1'26 the GAAP net income was $10M while "Adjusted" framing softens the Construction loss.
6. Tax volatility. Effective tax rate swung 23.1% (FY24) → 29.7% (FY25) → 30.8% (Q1'26), driven by Argentina hyperinflation accounting and non-deductible impairments on a small profit base — noise, not manipulation, but it makes GAAP EPS jumpy.

Regulatory findings (required sub-section).

• SEC enforcement: No Litigation Releases and no AAERs naming CNH Industrial in the search period 2021-06-17 → 2026-06-17, verified via SEC EDGAR EFTS. Clean.
• 10-K Item 3 (Legal Proceedings): ordinary-course exposure — dealer/supplier litigation, IP disputes, product liability, asbestos, personal injury, emissions/fuel-economy regulatory, competition-law and environmental claims; the most significant are described in Note 15 (Commitments & Contingencies). Management's position: reasonably-possible losses beyond accruals would not be material. No single bet-the-company case disclosed.
• Non-SEC enforcement: CNH (Case IH / New Holland) signed a right-to-repair MOU with the American Farm Bureau Federation, pending approval by the U.S. District Court for the Northern District of Illinois — a proactive settlement, the opposite posture to the FTC's active right-to-repair lawsuit against John Deere (in which CNH's data was subpoenaed as a third party). No material EPA emissions enforcement, DOJ, FTC or CFPB fine against CNH found.
• Verdict: No material regulatory or legal findings — verified via SEC EDGAR EFTS (LR, AAER), web search, and 10-K Item 3 as of 2026-06-18. The only governance items of note are internal (the remediated inventory material weakness and the PSU-hurdle removal), not enforcement.

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Phase D — Project & stress-test

Lens 11 · Forward Projection

Anchor (actuals + guidance): FY2025 adjusted EPS base is depressed; management's FY2026 adjusted-EPS guide is $0.35–$0.45; consensus FY2026 EPS ~$0.40 (cut from ~$0.566 to ~$0.403 over recent months; Northland at $0.36). Forward P/E ~18.3x on ~$0.40 → ~$7.3 of the ~$10.82 price is "current-year earnings × multiple"; the rest is recovery optionality.

Three-year adjusted-EPS path (FY2026 → FY2028), bottom-up, every input labelled, output ``:

• FY2026 (base): ~$0.40 — midpoint of guidance; industrial sales flat to −4%, EBIT margin 2.5–3.5%, tariff drag 210–220 bps (ag) / ~600 bps (construction). Trough year.
• FY2027:
• Base ~$0.70
• Bull ~$0.95
• Bear ~$0.45
• FY2028:
• Base ~$0.95
• Bull ~$1.30
• Bear ~$0.55

The whole equity case is a bet on the timing and shape of the 2027–2028 cyclical recovery off a confirmed trough. At ~$10.82, the market is paying ~18x trough earnings and ~11x a normalised ~$0.95 base — cheap if the cycle turns on schedule, dead money or worse if tariffs/Brazil push the turn out a year.

Per --watchlist rules, no Brier forecast logged (forecast.ts create skipped in breadth mode). If promoted to a thesis, the scoreable line would be: "CNH FY2027 adjusted EPS ≥ $0.65", p≈0.55, resolves 2028-02-28.

Lens 12 · Bull vs Bear (adversarial)

Bull case. (1) #2 global ag franchise at a confirmed cycle trough — Marx says Q1'26 is the low quarter; dealer destocking is largely done; production runs below retail, which front-loads the eventual snap-back when retail recovers. (2) Valuation is undemanding — ~0.84x EV/Sales, high-teens forward P/E on trough earnings, ~3.4% yield, buying back stock below $10. (3) Operating leverage — a high-fixed-cost OEM at 4.3% industrial margin has enormous upside to the ~8% it earned in FY24; even a half-recovery roughly doubles EPS. (4) EMEA strength (+8% ag in FY25) diversifies the NA weakness. (5) Self-help — "Iron + Tech" cost-out, dealer rationalisation, and eventual precision-ag monetisation. Contrarian view the market refuses to see: if 2027 NA ag inflects and tariffs ease, CNH re-rates on both recovering earnings and a narrowing quality discount — a double-barrelled move from a low base.

Bear case (permanent-impairment risks). (1) The Deere tech moat widens — if precision-ag/autonomy becomes the basis of competition and data/software the margin driver, CNH's fast-follower position (and its impaired Raven/Monarch/Bennamann bets) could mean structurally lower through-cycle margins and a permanent #2-discount, not a cyclical one. (2) Tariffs are structural, not transitory — 210–220 bps (ag) / ~600 bps (construction) of margin is a policy cost CNH cannot fully engineer away; if it persists, the margin-recovery math breaks. (3) South America credit — Brazil delinquency and the +$131M reserve could metastasise in the captive book ($28.6B managed portfolio) if crop prices stay low. Pre-mortem (18 months out, thesis broke): NA ag did not inflect in 2027, tariffs stuck at full force, Construction stayed lossmaking, Brazil credit losses forced further FS reserves, and the inventory built in early-2026 had to be written down — adjusted EPS stuck near $0.45 and the stock re-rated to 0.7x EV/Sales ($8). Are multiples too high? No — they are low; the risk is earnings, not multiple. Bear's sharpest point: you are underwriting a recovery that is entirely exogenous (crop prices, replacement cycle, U.S. trade policy) and over which management has no control.

Lens 13 · Devil's Advocate (short-seller)

Dismantling the bull case:

• What structurally breaks the model: the equipment cycle is exogenous and CNH is the price-taker, not the leader. Revenue is concentrated in Agriculture (~81%) and, within ag, was concentrated in a North America that just fell 26% with large tractors −33%. If the "trough" is a plateau — a lower-for-longer farm economy plus permanent tariffs — there is no recovery to underwrite, just a value trap at 18x flat earnings.
• Where concentration bites: (a) NA large-ag is the single biggest swing and it is in free-fall; (b) the captive finance book is a concentration of credit risk — Brazil is already deteriorating (3.1% past-due vs 1.9%; +$131M reserve), and a captive lender in a farm-income downturn is exactly where losses hide; (c) the dealer channel is both the customer and the wholesale-credit counterparty.
• Why the moat is weaker than bulls think: Deere is pulling away on precision ag/autonomy — the one axis that will define pricing power and recurring revenue — and CNH's response (Raven, Monarch, Bennamann) was just written down. A challenger that impairs its catch-up technology is not closing the gap; it is widening it while paying for the privilege.
• Most dangerous competitor bulls underestimate: not Deere (everyone sees Deere) but AGCO with PTx/Precision Planting and the retrofit/aftermarket precision players — they can erode CNH's tech-attach economics without CNH ever selling fewer tractors, hollowing out the high-margin future revenue.
• Worst capital-allocation / governance moves: impairing the precision-ag acquisitions; and removing the PSU dual-threshold in a downturn so management is paid through the trough — misaligned incentives surfacing exactly when alignment matters most.
• What must hold for today's price: a 2027 NA ag inflection, meaningful tariff relief, Brazil credit stabilising, and no inventory write-down. That is four independent things going right, three of them outside management's control.
• If growth disappoints 20–30%: FY27 base EPS slips from ~$0.70 toward the ~$0.45 bear, the forward multiple stays ~18x on that, and the stock is ~$8 — roughly 25% downside with the dividend as the only support.
• Single scenario that permanently impairs the business: precision-ag/autonomy becomes the basis of competition this decade, CNH stays a fast-follower, and the ag-equipment business bifurcates into a Deere-led tech-premium tier and a commoditised-iron tier — with CNH sliding toward the latter. Plausibility: moderate and rising — this is the real long-term risk, not the cycle.

Lens 14 · Management Questions (ordered by information value)

1. Tariffs are guided at 210–220 bps (ag) and ~600 bps (construction) of margin drag — what share of that is structurally mitigable via sourcing/footprint, on what timeline, and what's left as a permanent cost?
2. On precision ag and autonomy, where do you concede Deere leads, and what is the specific, dated roadmap to close the gap — given Raven, Monarch and Bennamann were just impaired?
3. What is your honest read on the NA large-ag cycle — is Q1'26 a trough that recovers in 2027, or a plateau? What leading indicators (order books, used-equipment prices, farm cash receipts) are you watching?
4. The PSU dual-threshold was removed for 2025–2027 — defend the alignment: why should shareholders accept loosened performance hurdles during a downturn?
5. South America credit — past-due jumped to 3.1% and you added a $131M Brazil reserve. How deep does this go, and at what farm-income level do FS losses become material to the consolidated P&L?
6. Inventory built $583M in Q1'26 into a downturn just after remediating an inventory-control material weakness — what is your confidence there is no write-down coming, and how do you reconcile the build with "production below retail"?
7. What is the through-cycle industrial EBIT margin you are managing to, and what gets you from 4.3% (FY25) back to and beyond the 8.2% of FY24?
8. Capital allocation priority at sub-$11 — buyback (below $10 in Q4'25) vs deleveraging vs precision-ag investment vs M&A. What's the ranking and why?
9. What is the recurring (data/software/connectivity) revenue today, its growth, and where can attach rates realistically go versus Deere's?
10. EMEA grew +8% in ag while NA fell 26% — is that a durable share/mix shift or a timing artefact, and how do you protect EMEA?
11. Construction is lossmaking (−$28M EBIT in Q1'26) — what is the path to acceptable returns, and is it strategically core or a candidate for restructuring/divestiture?
12. The leadership team turned over almost entirely in 2024–2025 (including a CLO from Nikola) — what is the cultural and governance through-line you are building?
13. How exposed is the captive finance book ($28.6B managed) to a prolonged farm-income downturn, and what is the stress-loss scenario you run internally?
14. Right-to-repair — you signed an MOU while Deere fights the FTC. Quantify the parts/service margin and data-strategy implications of opening up repair.
15. What is the single assumption in your FY2026 guidance most likely to be wrong, and in which direction?

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